Category: Uncategorized

Contact: Brenon Daly

Despite Wall Street being a fairly inhospitable place for recent tech IPOs, Rapid7 came to market Friday with a stunning debut. The vulnerability management vendor priced its 6.45-million-share offering at an above-range $16 each, with the stock surging to about $25 once it hit the Nasdaq. With roughly 38 million (undiluted) shares outstanding, Rapid7 is valued at $950m.

That’s a fairly strong valuation for a company that will only put up revenue of slightly more than $100m in 2015. Rapid7 generated revenue of $77m in 2014, an increase of 28%. It picked up its sales rate in the first quarter of 2015 to 41%. (Even if the company maintains that accelerated pace, however, it would still post just less than $110m in sales this year.) Further, Rapid7 does business in the old-fashioned license/maintenance model, rather than the subscription model that Wall Street favors. (See our preview of the IPO.)

Rapid7’s direct rival, Qualys, sells subscriptions only. It is about half again as big as Rapid7, tracking to a mid-20% growth rate that would result in almost $170m in revenue for 2015. (For what it’s worth, Qualys turns a profit while Rapid7 runs deeply in the red.) Wall Street values Qualys at $1.25bn, or 7.4x projected 2015 sales. That’s a full turn lower than the 8.6x projected 2015 sales that Wall Street is currently handing to Rapid7.

The premium valuation for Rapid7 stands out even more because virtually all of the other enterprise tech IPOs have all been discounted recently. The main reason: uncertainty on Wall Street. A just-published survey by ChangeWave Research, a service of 451 Research, found that more than half of the retail investors they surveyed are less confident about the direction of the US stock market than they were just in April. The 53% response, which tied a record for the survey, was six times higher than the percentage who said they were more confident about Wall Street. Keep in mind, too, that uncertainty tends to hit unknown, unproven companies – like IPOs – much harder than established tech names.

To see how that has pressured other newly listed companies, consider the two enterprise tech vendors to brave the IPO market in the US last quarter: Apigee and Xactly. Both have been roughed up on Wall Street, and are currently underwater. The muted reception extended to Sophos, the only other infosec provider to come public in 2015. That company, which listed on its home London Stock Exchange, accepted an extremely conservative value as it sold shares to the public for the first time. For some perspective, consider this: although Sophos is nearly five times larger than Rapid7, its market value only slightly exceeds Rapid7’s freshly printed valuation.

Contact: Mark Fontecchio, Scott Denne

Emerging opportunities in the network monitoring space lead Francisco Partners to make its first foray into networking and its largest solo purchase in eight years as the investment firm swoops in to buy Procera Networks, a deep-packet inspection vendor that was being hounded by activist investors.

Network monitoring and visibility was a significant driver of M&A activity in 2014, including Ixia’s $190m reach for Net Optics (with a similar multiple to today’s deal) and multibillion-dollar acquisitions of Riverbed and Danaher’s networking performance business. The sale of Procera is the largest in this category so far this year, but not the only one. Last month, Lookingglass Cyber Solutions picked up Procera competitor CloudShield.

As we highlighted in our 2015 M&A Outlook, we anticipate that smaller players in this space will continue to consolidate amid the convergence of application performance management, network performance management and network visibility. Though consolidation is coming, that’s not to say the market has matured. In the latest networking survey by TheInfoPro, a service of 451 Research, network monitoring was cited as a top pain point by 19% of network admins, up from 13% a year earlier.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Contact: Adam Phipps

We have posted a tutorial detailing the ability to search 451 Research’s M&A KnowledgeBase by technology themes, in addition to sector, to locate emerging or disruptive technologies that may be spread across multiple 451 categories. For example, Singtel’s pickup of Trustwave has a target theme of cybersecurity, Cisco’s Embrane acquisition has the seller tagged with SDN/NFV, and Neilsen’s eXelate buy is categorized as big data. Meanwhile, search cloud computing deals to find SolarWinds’ Librato purchase, and find Microsemi’s reach for Vitesse in the Internet of Things category.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Contact: Brian Partridge

Nokia has acquired Alcatel-Lucent for $16.5bn. The deal brings together former rivals and changes the competitive landscape for the next generation of converged broadband telecom infrastructure. We also think it could incite a new wave of dealmaking among telecom infrastructure suppliers, most notably Ericsson.

The all-stock transaction, expected to close in the first half of next year, will create a combined company with top or near-top market share in several categories, including LTE, fixed broadband infrastructure, IP routing, subscriber data management and customer experience management. Both companies have aggressively pursued SDN/NFV competencies, with Alcatel-Lucent strong in SDN and Nokia being a leader in early implementations of NFV.

Traditional fixed and mobile voice telephony services have steadily declined. Demand for fixed and mobile broadband Internet services has helped fill the gap, but massive network traffic increases have driven incremental revenue growth for operators. These market dynamics have created an environment where bundled fixed voice, broadband and video ‘triple play’ and mobile ‘quad play’ services are imperative to maintain operator profitability and customer stickiness – but they require architectural convergence (to IP networks) to efficiently support them. Against this industry backdrop, Nokia and Alcatel-Lucent bring several complementary assets to the table that will position the new company well to serve traditional customers (telcos) as well as create some new opportunities to sell to large enterprises and Internet vendors.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

 

Contact: Mark Fontecchio

IBM adds two healthcare analytics software firms – Phytel and Explorys – to its portfolio. Last year, Big Blue said it would invest $1bn in Watson to expand its cognitive computing platform beyond beating Ken Jennings on Jeopardy! and better commercialize the technology. The investment was to focus on sectors where cognitive computing could have commercial success – among financial services, retail and others, IBM cited healthcare.

Phytel’s software analyzes patient data, integrating with providers’ electronic health record systems with the main goal of preventing hospital readmissions. The other deal is for Explorys, which integrates healthcare data from various sources and analyzes patient and provider information. Both will administer technologies to IBM’s Watson Health Cloud, which includes partners such as Apple and Johnson & Johnson and will allow doctors, researchers and insurance companies to dive into a massive trove of anonymized personal healthcare data.

Big Blue’s sickly revenue dropped 6% last year, and it sees the healthcare vertical as a way to help heal its top line. Hemorrhaging hardware sales and steady services declines leave software as the best opportunity for IBM to get out of intensive care, and healthcare is a good bet – according to ChangeWave Research’s recent corporate quarterly survey, healthcare is one of two sectors (IT software and services is the other) expected to see the most spending increases this year. Healthcare tech M&A is also humming along in 2015, on pace to stay even with last year’s volume after a 64% increase over 2013, according to 451 Research’s M&A KnowledgeBase.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Contact: Adam Phipps

We recently noted the imbalanced market for selling VC-backed companies with valuations over $1bn. 451 Research’s M&A KnowledgeBase can be used to identify those deals where the target (or even the acquirer) is venture-backed. Searches can be further refined by venture firm – a search of Accel Partners, for example, shows that firm having a strong start to 2015 by exiting investments in lynda.com and MyFitnessPal. Use our saved search of YTD venture exits, and also watch this short tutorial about finding venture capital information in the KnowledgeBase.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Contact: Scott Denne

Though the acquisition of lynda.com is far larger than any of LinkedIn’s other purchases, it’s picking up an asset that shouldn’t be a drag on its financial performance and one that plays in a market where the company is comfortable. At $1.5bn (which includes $720m in stock), the deal is more than 8x the size of its Bizo buy, its previously largest transaction at $175m. Bizo, by comparison, was a complex (though we think smart) acquisition that brought LinkedIn into the ad network business and involved a significant change to the target’s low-margin business model.

Both LinkedIn and lynda.com have about 70% gross margins, both spend 35% of revenue on sales and marketing, and lynda.com has EBITDA margins in the 5-10% range, just under LinkedIn, which has posted a smidge over 10% in each of the past two years. However, at 20% year over year, lynda.com’s growth is a bit behind LinkedIn’s 45%. At 10x trailing revenue – a full three turns below LinkedIn’s own valuation – the deal looks like a bargain.

With today’s move, LinkedIn is obviously seeking more than matching financial performance. With lynda.com, LinkedIn has an opportunity to boost that 20% growth by marketing educational videos and courses to relevant customers on its network, and it increases its presence in higher education (higher ed and government account for half of lynda.com’s business), which is an important segment for LinkedIn as it looks to snag future professionals at an early stage in their careers. Also, when it integrates lynda.com’s educational materials, LinkedIn will get a better view into what its users want to do, not just what they do today.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Contact: Matt Mullen

Nearly 20 years ago, there was a burst of exuberance for digital commerce software companies, with commerce and Web vendors gaining attention and massive valuations. However, the sheer complexity and lack of market readiness meant that many ambitions remained unfulfilled.

Today the market is ready and though the complexity is still there, the urgency and potential rewards are now greater. Commerce technology is tricky stuff and those that want to add it are unlikely to want to build their own, making the remaining independent players ideal acquisition targets.

Many of the largest social business application providers (IBM, Oracle, SAP, etc.) have already put a stake in the ground in this market. And many will look for tuck-ins. Though a number of players are aging, the necessary partnerships and technologies they’ve built over the years are not easily replicated. There’s also an influx of venture capital into this market, particularly among SMB-focused companies that could make for compelling acquisition targets.

Look for a forthcoming report detailing the potential acquirers and targets in the digital commerce software space.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Contact: Scott Denne

A year after Dell’s $25bn take-private, the PC giant is like a Thanksgiving turkey: it has a rich, golden exterior but the meat is a little dry. As is done by nearly every private technology company, Dell enjoys being able to selectively disclose numbers. No surprise that those numbers highlight its recent momentum. Our surveys, however, aren’t as optimistic.

For example, Dell said at its recent customer conference that PC shipments (not revenue) grew 10% worldwide and 19.7% in the US in 2013. A survey from ChangeWave Research, a service of 451 Research, shows consumer intention to buy a Dell laptop or desktop hit a four-year high last quarter, but among corporate buyers, which account for about 80% of Dell’s PC business, intention to buy Dell dropped to an all-time low.

Dell also claims to be the market leader in storage (in terms of terabytes shipped, which includes storage in servers). According to a survey by TheInfoPro, a service of 451 Research, a full 25% of Dell storage customers are considering switching to a competitor in 2015 (only Oracle and Fusion-io fared worse). However, more customers in the same survey did indicate they would increase their spending with Dell in 2015, compared with the same survey a year earlier.

All that is not to say the buyout provided nothing more than a bountiful table for Dell’s marketing department. The company is showing signs of progress on several fronts: management appears more engaged and many customers view Dell as a more interesting vendor to work with. Subscribers to 451 Research’s Market Insight Service can read a more detailed report on Dell’s progress and strategy across several lines of business here.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Contact: Scott Denne

Yahoo reaches for one of the last remaining video exchanges of any scale with the $640m purchase of BrightRoll. The deal tops a wave of M&A targeting companies that serve the publisher side of the video advertising business.

The transaction benefits Yahoo in a couple of ways. BrightRoll is the largest independent video ad network; bundling it with the video inventory on Yahoo’s owned and operated sites will add scale to that inventory and make it more valuable.

While we believe most of BrightRoll’s revenue comes from its original ad network business, it has a growing video exchange unit that could make a powerful extension to the burgeoning mobile video ad network of Flurry, another recent Yahoo acquisition. BrightRoll also has a nascent programmatic demand-side business. That piece of the target aligns well with Yahoo’s efforts to develop more tools for advertisers, such as its recently launched Yahoo Gemini and its pickup of AdMovate last year.

In terms of trailing net revenue, Yahoo is paying about 6x, on the low end of the 5-10x range we’ve seen in recent purchases of video ad exchanges and publisher tools. While BrightRoll is a scarce asset these days (we covered past video ad M&A and the dearth of targets in a recent report), Yahoo is a rare buyer – not many companies have the strategic need for a video ad platform as well as the capital to take out BrightRoll. That’s not to say this isn’t a good deal for BrightRoll. Without Yahoo, the company would have likely turned to the public markets, where video ad networks Tremor Video and YuMe command 2-3x trailing net revenue.

Morgan Stanley, which advised BrightRoll rival Adap.tv on its sale to AOL last year, also banked BrightRoll on today’s transaction.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.